A black youth worker arrested and charged for watching at a distance as police detained a teenager at a London railway station is to receive an apology and £22,000 compensation from the British Transport police.

Ken Hinds, 50, who regularly liaises with police in his work for a charity tackling gang violence, will receive the payout under an agreement to be finalised later this week.

While his lawyer welcomed the settlement, she expressed grave concern that the officers involved received only a minor reprimand despite their admission – contrary to the evidence they gave in court – that one of them copied his evidence from his colleague.

Fiona Murphy, of solicitors Bhatt Murphy, also condemned the BTP for failing to properly investigate the incident over a period of five years, and only settling when faced with a high court claim for false imprisonment and malicious prosecution. Incidents in which black men were arrested for no apparent reason remained "almost routine" despite decades of efforts to eradicate racism among police forces in London, she added.

Hinds was returning home from an Arts Council event in May 2004 and had arranged to meet his son, then aged 12, at Seven Sisters train station in north London. While waiting in the ticket hall, he saw a group of police arresting a young black man and stood where he could observe from a distance in case he was needed as a witness. He was then approached by another officer, from the BTP.

"He walked over and said: 'Do you know that young man?' I said no. He said: 'Fuck off, then. It's got nothing to do with you,'" Hinds said. After insisting calmly that he was within his legal rights to remain, Hinds was first threatened with arrest and then marched across the station in handcuffs by two BTP policemen.

Hinds was taken to a north London police station and held for four hours. He was charged with threatening and abusive behaviour but acquitted after magistrates questioned why witness statements by two policemen involved were worded identically in several passages. It later transpired one policeman had been emailed his colleagues' version, which he had partly copied. Two internal BTP investigations concluded that the officers had merely been incompetent in exchanging their accounts and failed to consider the allegation that they had been dishonest.

"That is the disappointing thing about this," said Murphy. "Despite apologising to Mr Hinds, the BTP have demonstrated a complete unwillingness to investigate properly, mislaying CCTV footage of him in the station and failing even to try and track down the emails between the officers."

A BTP statement released as part of the settlement said the force "regrets the circumstances" in which Hinds was asked to move on at the station "and wishes to apologise for this", while admitting no liability over the event.

Hinds said he was sorry that even this had to be "prised out of them". He says he backs the police and fully supports efforts to attract more black recruits.

"My message to them is: we understand you've got a difficult job and you won't get it right 100% of the time, and we want you there to help safeguard our communities, but we want you to do it in a fair and just way. When you do make a mistake, say sorry. It's not a big deal. But in my case it took a long time."